EasyJet buys rival Go

Chairman Stelios Haji-Ioannou said the deal was "one of the most exciting developments" in his airline's history. The takeover, which comes just a fortnight after talks were first revealed, will be funded by a £276.7 million rights issue in the City.

Go's parent company, the private equity group 3i, has agreed the deal although it will see the departure of the airline's chief executive Barbara Cassani.

EasyJet said that the Go name was also likely to disappear "in due course" as it brings the two firms' operations together.

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Mr Haji-Ioannou said: "This is one of the most exciting developments in easyJet's history and offers the potential to create substantial value for our shareholders.

"The acquisition will contribute significantly to our objective to become Europe's leading low-cost airline by strengthening our position in important target markets, increasing our management strength and providing a larger, stronger platform from which to exploit growth opportunities profitably."

Ms Cassani said the deal was a "tremendous compliment" to the efforts of Go's staff in the four years since it began flying. She said: "I know that my colleagues at Go will contribute enormously to the success of the combined group."

Ray Webster, easyJet chief executive, denied the deal would see fares on the airline rise. "This is an opportunity to keep prices low," he said.

"It is interesting that since we started business seven years ago that our prices have not moved up, in fact they have moved down. That is the beauty of our model. We need low fares to stimulate the market that we are developing.

"It is difficult to raise prices when you are growing as quickly as we want to grow. It will be interesting, the next step will of course be to decide how many additional airplanes we want to take on order.

"Once we commit to those we need to make sure we keep prices low to create the market that we need to use all of those airplanes."